marian financial

8/9/2019 Marian Financial

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METHODOLOGY

Introduction.. 3

TASK 1.

1.1Identify the sources of finance available to a business..... 4

1.2 Assess the implications of the different sources... 5

1.3Evaluate appropriate sources of finance for a business project.....

1.4 Analy!e the costs of different sources of finance......"

TASK 2.#2.2 E$plain the importance of financial plannin%...... ...11

#2.3Assess the information needs of different decision ma&ers...... ...12

# 2.4E$plain the impact of finance on the financial statement....... 13

TASK 3

#3.1Analyse bud%ets and ma&e appropriate decisions.. 15

#3.2E$plain the calculation of unit costs and ma&e pricin% decisions usin% relevant

information.. 1'

#.3.3Assess the viability of a project usin% investment appraisal techni(ues....................1"

TASK 4

#4.1)iscuss the main financial statement.............. 2'

#.4.2 *ompare appropriate formats of financial statements for different types of

business........2

#4.3Interpret financial statements usin% appropriate ratios and comparisons+ both internal

and e$ternal..3,

*onclusions......31

-eferences ...32

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INTRODUCTION

Enterprise financin% means obtainin% and ma&in% available some money+ property

ri%hts and productive. inancin% issues crucial to the survival of produce and develop the

trainees underta&in%. irstly the company must respond li(uidity to meet commitments+

namely to honor debts maturin% in the near future+ thus ensurin% financial stability in the

short term. /econdly arises from the enterprise of openin% the investment of any &ind

0technical+ commercial+ social to develop its possibilities. In this case it is financin% the

development of the medium and lon%term %roth condition results in the future and

maintainin% financial balance.

undin% problems presented so vital for their resolution determines the survival of the

enterprise+ its development prospects+ its performance and future autonomy of its oners and

mana%ers

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TASK 1

1.1Identify the sources of finance available to a business

he sources available for a business can be on

A: L!" #$%&' !&$*:

Internal -etained profits

E$ternal /hare capital or e(uity share

#reference shares

6oans

)ebentures

inance lease

7ort%a%e

8ire purchase a%reements 0)ransfield+ 2,,4

B: S+%# #$%&' !&$*:

Internal *ollectin% debt faster

-educin% inventory level

)elayin% payment to trade creditors

E$ternal 9an& overdrafts+ 9an& loans

)ebt factorin%

Invoice discountin%

rade credit

Advances received from customers 0)ransfield+ 2,,4

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P1.2T+$ ,&-,#,! #+$ 0,$%$!# %$

Each source has many implications. /o e can meet

A: O! !" #$%&:

E,#,$:. E(uities are securities issued by a company named issuer+ traded+

representin% the share capital oned by a person or entity. 09uc&land and )avis+

1""5

C&&! +%$: he property ri%hts of oners of ordinary shares may be made only

after satisfyin% all property ri%hts of oners of preferred shares. hey %ive dividends

based on business results+ dividends are %enerally lo+ or that may not e$ist at all.

:nership of company assets+ accordin% to the number of shares. /hareholders

entitled to dividend+ %iven the reali!ation of the profit :rdinary share %ives its oner

the ri%ht to vote at %eneral meetin%s of shareholders entitled to receive a share

dividend and part of company assets for li(uidation. 09uc&land and )avis+ 1""5

P%$$%%$0 +%$:is a hybrid of action+ bein% similar to bonds on the one hand and

on the other side havin% the characteristics of common stoc&. It %ives dividends in the

form of fi$ed rate+ and very attractive for lar%e capital contribution; 8olders of

preferred shares+ e$ercisin% its ri%hts over the assets bein% superior common

shareholders. It confers upon its oner the ri%ht to a dividend default+ to be paid

re%ularly. :ners of preferred shares have no votin% ri%hts in the %eneral meetin% of

shareholders. hey can be called at any time by the company after a certain date.

09uc&land and )avis+ 1""5

L!:

L$" ,&-,#,!:subject to asset catch in case of default

F,!!, ,&-,#,!:payment of amorti!ation per month


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before other creditors+ preferred stoc&holders or common stoc&holders receive any payment.

0At&inson+ 2,,5

1) S+%# #$%&:

O$%0%#:

L$" ,&-,#,!:need to fill up promise to pay re(uirements and other repayment

term documents

F,!!, ,&-,#,!:company is obli%ed to pay the repayment char%e. #enalties and

other char%es are e$tra burden if not paid on time.

D,#,! !#% ,&-,#,!:control is not diluted

B!%-#* ,&-,#,!: amon% the first to be paid from the residual asset of the

company. 0At&inson+ 2,,5

F#%,!". actorin% can contribute si%nificantly to their operations. he factorin%

company can provide billin% and collection services+ and serve as an a%ent for its

portfolio of receivables actorin% does not re(uire a chan%e in the shareholdin% structure

of a company. #rovides li(uidity+ hich allos you to %et your suppliers cash discounts.

-educe operatin% costs by %ivin% the receivables to a company dedicated to factorin%.


T%0$ %$0,# is that beteen manufacturers and retailers by sellin% %oods in e$chan%e for

debt instruments 0or ne%otiable instruments.

L$" ,&-,#,!:can be sued in case of nonpayments F,!!, ,&-,#,!: he *ompany has to shoulders actions on the payments on

time+ but not for prompt payment discount

D,#,! !#% ,&-,#,!:control is not attenuated.

B!%-#* ,&-,#,!:suppliers must file case for first payment. 09uc&land and

)avis+ 1""5

A$# L$$

L$" ,&-,#,!:lease a%reement is essential

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F,!!, ,&-,#,!: =/ 0=oods and /ervices a$ is char%ed on the monthly lease

rental and on the residual value at the end of the lease. he customer can pretend the

lease rentals as a ta$ deduction.

D,#,! !#% ,&-,#,!:control is not attenuated but pull out of assets in case

of default that may prevent operations

B!%-#* ,&-,#,!: suppliers must file case for first repayments in case of

ban&ruptcy. 09uc&land and )avis+ 1""5

H,%$ P%+$:

L$" ,&-,#,!:a%reement is re(uired

F,!!, ,&-,#,!: ta$ credit can be enjoyed; the customer can pretend the

depreciation of their e(uipment as a ta$ deduction

D,#,! !#% ,&-,#,!: control is not diluted but pull out of assets in case of

default that may hamper operations

B!%-#* ,&-,#,!:none. 0)ransfield+ 2,,4

P1.3E#$ --%-%,#$ %$ ,!!$ % 6,!$ -%7$#

I ould li&e to open a cafe+ to be perceived as a arm and elcomin% space here

staff is friends ith customers and create a trustin% relationship. *afe %oal is to offer a special

menu of coffee+ tea and chocolate of the hi%hest (uality in a rela$ed and cheerful atmosphere.

:bjectives

Adapts permanent business in 6iverpool by offerin% ne products and ays of

leisure A minimum of 1,, clients < day in the first year of business

)evelop a trustin% relationship ith clients+ so promotin% the caf> to achieve

primarily throu%h referrals

:penin% a successful cafe+ ith the youn%er se%ment of the middle class

or business development+ I proposed lease < purchase of a central space+ fittin% it

properly and promote the cafe in the tar%et se%ment. his project re(uires an initial sum of ?

23,+,,, as detailed in the financial plan. his amount includes both the initial investment in

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plannin% the cafe 0? ',+',, and capital needs for the first si$ months. his amount ill come

from 1,@ of the shareholders. or the remainin% amount ill be borroin% ban& three years.

*af> ill start or& ith a location 1,, s(m. he aims rentin% a space in a hi%h foot

traffic area 0center+ near a university or some office buildin%s in a commercial space. o

issues ill be pursued possibility of openin% a summer terrace and par&in% nearby.

*af> space ill be arran%ed so that it can be separated into to or three rooms. his ill

allo both hostin% private parties and arran%in% a space for smo&in% under the ne anti

smo&in% la. he caf> ill feature 15 tables 0separated into to or three salons+ a bar+ 2

bathrooms+ a dressin% room for employees+ an office and a room that ill serve as a

repository

*af> staff ill consist of an official cafe+ four aiters+ to bartenders and to people

responsible for cleanin% that ill or& in shifts. E$cept :fficer cafe hich ill have a

considerable e$perience in the field+ recruitin% other people ill consider primarily personal

characteristics and a desire to learn and less e$perience in the field

he caf> ill offer a variety of coffee based drin&s from cappuccino+ cafe latte+ americano+

mocha+ mocha fla&e+ espresso+ ristretto+ macchiato+ etc..+ And a comprehensive menu of tea

and hot chocolate. his ran%e ill be complemented by coc&tails+ soft drin&s and alcohol.

It ill also establish a partnership ith a ca&e and a sandich shop to deliver ca&es and

sandiches to be &ept in a cooler and customer service.

he caf> ill be promoted constantly by leisure %uides both on paper and in online

format 0sin% these channels+ e ill sho a brief description of the cafe+ services offered

and themed evenin%s on ebsite and a phone number for reservations.

*afe mana%ement ill opt for their ebsite that provide information about the products

offered and the ability to ma&e reservations online or by phone.

In this &ind of business+ a special role has staff carefully selected to match the

atmosphere created in the cafe. hereafter+ employees ill attend trainin%+ both in terms of

proper preparation mar&eted products and from the perspective of customer relationship

mana%ement.

A mana%ement team ith e$tensive mana%ement e$perience ill play an important role

in controllin% the achievement of the objectives durin% activity once implemented business

plan. Evaluation activities ill be carried out periodically+ assumin% analy!in% the results and

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ho they are meetin% the %oals and proposed strate%ies. his system ill allo you to correct

any errors that mi%ht occur alon% the ay.

TASK II

P2.1 T+$ # 0,$%$!# %$ ,!!$

Amon% the variables that can intervene in the choice of fundin% sources must consider

the len%th of financin%+ enterprise autonomy and fle$ibility provided by the use of different

sources of financin% on financial mar&et. 9ut not least the cost of financin%+ hich is the

main determinant in the choice of fundin% sources. 0)ransfield+ 2,,4

C#,! #+$ C# P%$$%%$0 S#

rom the point of vie of enterprise cost preferred shares is a specific cost of these

e(uity and in terms of the holders of such securities is re(uired by the rate of return toinvestment in such securities. *ost of preferred shares+ provided that such securities are held

indefinitely+ can be measured from the folloin% e(uation+ hich must verify the e(uality.

0)ransfield+ 2,,4

C#$ 8$,"+#$0 A$%"$ C# C-,# (8ACC)

Bei%hted avera%e cost of capital in this ta$ation is loer in underta&in% the tas&+ because

the interest deduction from ta$able profit. It records the ta$ savin%s 0at interest $ ta$ rates as

the coefficient. hese ta$ savin%s are to increase net profit and present value 0in perpetuity

of these ta$ savin%s leads to increased value and+ conse(uently+ loer cost capital.

0)ransfield+ 2,,4

C#,! C# D$6# C-,#

C# 0$6# -,# is made by a firm in a %iven period of time at a certain cost 0interest

rate established by contract+ as a preferential payment toards the cost of e(uity. he

company usually uses ban& loans and issue bonds to raise capital borroed financin% activity.0)ransfield+ 2,,4

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C#,! #+$ C# R$#,!$0 $%!,!"

/toc&holders let the companyCs mana%ement &eep some of the earnin%s and reinvest

them bac& into the company 0rather than payin% it to them in the form of dividends. his

does not mean that these retained earnin%s are free+ hoever D the stoc&holders still e$pect to

earn a rate of return on the companyCs investment of this money. he rate of return that the

company must earn on the investment of this money 0in order to &eep the shareholders

happy is called #+$ cost of retained earnings. he formula for calculatin% the cost of

retained earnin%s is shon belo. 0)ransfield+ 2,,4

P2.2 !0 P2.3

A memorandum report should be structured thus

7emorandum report

rom 7arian 6acatusuD 7ana%ement *onsultant

o 7ana%ement Accountant

)ate ,5


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In plannin% are to basic directions

#reparation of strate%ic plans 0perspective a process of decisionma&in% on strate%ic

pro%rams and include lon%term plans for the overall development of the business and

lon%term structure of the enterprise. 09uc&land and )avis+ 1""5 9ud%etin% and determinin% the shortterm tas&s+ hich is done by detailin% lon%term

plans in the current shortterm bud%et business activity for short periods 0up to one year


he main tas&s of plannin% are

o collect all data on the companyGs performance and to compare them ith those of

prior periods+ ith the industry avera%e and competitors o estimate demand and to forecast sales

o determine the inputs necessary to achieve that volume of sales

o determine ho these resources ill be obtained

Ensure efficient use of surplus funds

#rovide shortterm financial balance 09uc&land and )avis+ 1""5

inancial plannin% involves the development of an enterprise preparin% prospective

financial statements in order to prevent a lac& of li(uidity+ reduce uncertainty surroundin% the

future of the company but also for the information needs of shareholders and other investors.09uc&land and )avis+ 1""5

3.9 I!%,! %$,%$&$!# #$+0$%

In 1"3+ reeman and -eed proposed the folloin% definition of sta&eholders

HStakeholders are any group or individual firm depends for its survival.H he definition ta&es

into account the fact that the company has limited resources+ sta&eholders bein% able to

complement these resources .

/ta&eholders+ sta&eholders and the sta&eholders are classified accordin% to the

relationship they have ith the or%ani!ation and the influence they e$ert in it.

In an enumeration %eneric sta&eholders of business or%ani!ations are

T+$ +%$+0$%'ho have le%itimate interests in financial or%ani!ation aaitin%

compensation le%itimately invested capital 0throu%h dividends and the ris& assumed

0throu%h increasin% the value of shares held pay none of these possibilities is not

%uaranteed+ it depends on the ay or%ani!ation evolves and therefore increases or

decrease the company affects the elfare and ealth of shareholders.

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he assets ill increase by 1, ,,,

Assets55,2,J1,,,,

Assets'5,2,

*urrent liability5,,J1,.,,,

*urrent liability1,5,,

OPTION 2 he *ompany obtain a 2year of ?1,+,,, at 1,@ interest per annum

he assets are %oin% to increase by 1,+,,,

he e(uity is %oin% to decrease by 1,,,

he liabilities are %oin% to increase by 1,,,,

6on% term liabilities114,,J1,,,,

6on% term liabilities214,,

1,,,, $1,@1,,,

01,,,, 5,,, $ 1,@5,,, $ 1,


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)irect 6abor ?22+5,, 24+35 01+5

9ud%et Actual Kariance

nits sold 1,,+,,, 5+,,, 025+,,,

7aterials ?15+,,, 22+5,, 0+5,,

)irect 6abor ?22+5,, 24+35 01+5

PART B (P 3.2)

D,%$# #:

#aper2,4 reams of A4 at 3? per reams

In&2 liters at ?" per liter

6abor time2 hours at ?15 per hour

I!0,%$# #:

#roduction overheads and machine utili!ation2 hours at ?55 per hour

/ellin%+ distribution and administration overheads are recovered by char%in% ?2, per

hour and the company re(uires a 1, @ mar&up on sellin% price

Y %$ %$,%$0 #:

1. 8o you ould arrive at the total cost for the job and the cost per leaflet.

A printin% company obtains an order for 1,,+,,, leaflets of A5 si!e printed in blac& in&.

he cost estimator has prepared the ne$t assess of resources needed for the job.

2. he total production cost

02$" J 02,4$3 J 02hours$15 J 02 hours$15 J 02 hours $2, 1, pounds

TOTAL COST FOR THE ;OB 1, pounds

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o find the price per leaflet e have to divide the total cost of production of 1,,+,,,

units

otal cost of production


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#rofit1, $ 55 49.5 -!0

ii he bud%eted number of hours that the job re(uires is readjusted to 1+5 hours

otal cost of production 02 $ " J 02,4 $ 3 J 01.5h $ 15 J 01.5h $ 15 J 01.5h $ 2,

T# # % #+$ 76'5 pounds

otal cost of production


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Initial Investment 05,,,, 05,,,,

*ash inflos year 1 35,,, 2,,,,

2 3,,,, 2,,,,

3 25,,, 24,,,

4 2,,,, 3',,,

At the end of year 4+ project A and 9 ill each have a resale value of ?1,+,,,.he cost of

capital is 1,@.

Y %$ %$,%$0 #:

1. *alculate for each project

i. he avera%e annual rate of return on avera%e capital invested 0Accountin% rate of return

)eprecationinitial costscrap


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Avera%e profit,+ ,,,


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A-- 015+,,,


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or project 9 the paybac& period is 2 years and 5 months

,,,) T+$ -%$$!# $

#resent valuecash flo for every one year $ discount factor

P%7$# A

C+ D,!# #% P%$$!# $

Y$%1 35+,,, ,."," 31+15

Y$%2 3,+,,, ,.2' 24+,

Y$%3 25+,,, ,.51 1+5

Y$%4 2,+,,,J1,+,,, ,.'3 2,+4",

/crap value

N#Ktotal present value of the project initial investment

N#K"5+ ',5,+,,,

N#K45+ ',

P%7$# B

C+ D,!# #% P%$$!# $

Y$%1 2,+,,, ,."," 1+1,

Y$%2 2,+,,, ,.2' 1'+25,

Y$%3 24+,,, ,.51 1+,24

Y$%4 3'+,,,J1,+,,, ,.'3 31+41

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/crap value

N#Ktotal present value of the project initial investment

N#K3+ 25,+,,,

N#K33+ 2

,) T+$ -%,#6,,#* ,!0$

#rofitability inde$net present value


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3. 9riefly discusses the relative advanta%es and disadvanta%es of four methods of evaluation

mentioned in 01 above.

A!#,!" %#$ %$#%!

A0!#"$:

*an be calculated easily

his is a simple techni(ue of capital bud%etin%

he entire life of the project ta&es into account

D,0!#"$:

It ta&es no account of the incidence of profits

It ta&es no account of the time value of money 09endrey and 8ussey et al.+

1""'

P*6 -$%,0

A0!#"$:

/hort recovery period reduces the ris& of loss resultin% from chan%es in

economic conditions

he recovery period can be calculated easily

D,0!#"$:

he paybac& period i%nores the time value of money.

It i%nores the useful life of assets and cash flo. 09endrey and 8ussey et al.+

1""'

N$# -%$$!# $

A0!#"$:

#rofitability and ris&s are in the fore%round

his method increases the value companies

9y a method of net present value+ the benefit is that it is a direct contribution to the

./. dollar at the level of shareholders.

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D,0!#"$:

sin% the N#K method+ the disadvanta%e is not measurin% the si!e of the project

It is very difficult to calculate09endrey and 8ussey et al.+ 1""'

P%,#6,,#* ,!0$

A0!#"$:

#rofitability Inde$ does not i%nore the time value of money

It shos the e$act rate of return on the project

D,0!#"$:

It cannot be so easily understood

If to projects have different useful life+ the #rofitability Inde$ is calculated hard.

09endrey and 8ussey et al.+ 1""'

4. E$plain hich project you ould recommend for acceptance.

or acceptance I recommend project A.

TASK I

P 4.1 T+$ &,! ,!!, ##$&$!#

inancial statements are a major tool in the mana%ement+ are necessary both for

decision ma&in% on the allocation of fundin%+ use and recovery of funds and or%ani!ation to

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achieve control over decisions and to establish ri%hts and obli%ations and responsibilities and

incentives from the activity and development of herita%e mana%ement. he objective of

financial statements is to provide information about the financial position+ performance and

cash flos of an enterprise+ useful information to a varied ran%e uses for ma&in% economic

decisions. 06ev+ 1"4

Be can meet four financial statements

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G% P%,# M%",! < 3>' >

Net #rofit 7ar%in 0Net #rofit after ta$ $ 1,, '> 45'32

NPM 15'2 23'?

In this case+ I consider that the company OP9 Associates have a hi%her profit than -. -i%%s.

() 8+,+ 6,!$ --$% # 6$ $ ,,0 ;#,* *% !$%.

irst+ I have to calculate their 6i(uidity ratios.

R. R,""

*urrent -atio *urrent Assets


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*urrent -atio 1+4 1

; B A,#$

*urrent -atio *urrent Assets


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=earnin% 0.,.,,, $ 1,,


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(I ) P%,$ / E%!,!" %#,

#rice


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process involved the financial policy of the company involved+ also the ability and the

repayment of indebtedness.

REFERENCES

1. At&inson+ A. 02,,5New sources of development finance. :$ford :$ford niversity

#ress

2. 9uc&land+ -. and )avis+ E. 01""5.Finance for growing enterprises. 6ondon -outled%e.

3. )ransfield+ -.02,,4. Business for foundation degrees and higher awards. :$ford8einemann.

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4. =ul&o+ *. 02,1,.Accounting, business, and finance. Ne Mor&+ NM er%uson.

5. 8eymann+ 8. and 9loom+ -. 01"", Opportunity cost in finance and accounting. Ne

Mor& Ruorum 9oo&s.

. -o%ers+ /. and 7a&onnen+ -. 02,,3 he entrepreneur!s guide to finance and business .

Ne Mor& 7c=ra8ill.?. =ul&o+ *. 02,1,.Accounting, business, and finance. Ne Mor&+ NM er%uson

=. oster+ =. 01".Financial statement analysis. En%leood *liffs+ N.O. #rentice8all.

>. 7ott+ =. 01"""Accounting for non"accountants. 6ondon So%an #a%e.

19. 9endrey+ 7.+ 8ussey+ -.+ Best+ *.+ 8ussey+ O.+ 9endrey+ 7.+ 8ussey+ -.+ Best+ *. and

8ussey+ O.01""'.Accounting and finance in business. 6ondon )# #ublications.

11. /vendsen+ A. 01""" he stakeholder strategy. /an rancisco+ *A 9errettSoehler

#ublishers
http://www.citethisforme.com/http://www.citethisforme.com/

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